🚨 130% NET EXPANSION RATE 🚨

Sales grew by 44% YoY 📈 It got 630 customers with ACV over $ 100K 💸

This company provides the SEARCH ENGINE 🔍 company needs 💻

Here is an EASY thread on a HARD TO UNDERSTAND business 👇
$ESTC Elasticsearch is an open source analytics and full-text search engine 🔍

It was released in 2010 & authored by Shay Banon 👤 (Current CEO)

Elastic NV was incorporated in 2012 to provide commercial services 🛍 and products around the software 💻 It went public in 2018 ✅
But what is a SEARCH ENGINE 🔍

Let’s say you are building your #ecommerce website 🛍 You add products to it, host it and bring it live ✅

1️⃣ Users will start going through your products 👀 Of course, some users will want to look for something specific
2️⃣ What can they do? Well, they can use filters to eliminate unwanted items

3️⃣ Or they can go even further 👉 Directly type what they want in a search bar on YOUR website
Doesn’t sound TOO difficult right 🤯 Indeed, this can be seen as the internal “Google” of websites

👉 Do companies develop this feature from the ground up? Or do they rely on a third party? 👨‍💻
☎️ If you want to add messaging to your app 📱There is little chance your start developing the whole infrastructure on your own

✅ Just use $TWLO 💡 it will save your developers 👨‍💻 lots of time and be a more robust solution to what you could implement on your own in most cases
🔍 You want to add a robust, efficient and quick search engine to your website?

✅ Just use $ESTC and customise it to your needs
But… ⁉️ A search engine is something basic right ❇️ You just type in some keywords and get back the ones that match ✅

‼️ Well, there is more to a search engine than keyword-matching 👇
$ESTC provides one of the best search engines available, when you type and search, it does the following 👇

✅ Auto-completion, correcting typos, fuzzy matching, synonyms matching 📝
✅ Normalising tokens 🧽 (e.g. remove punctuation from words) and reduce words to their root form (e.g. “foxes” become “fox”)

✅ Control for relevance, similarity and popularity 🎉 in order to provide the best match for the user’s query
Is it important to provide a solid search engine ⁉️ Look at HappyFresh’s story

1️⃣ HappyFresh is a leading grocery shopping 🛍 and delivery platform in South East Asia 🌏

2️⃣ Customers were not completing orders 🛒 as the search results were taking too long to appear 🤯
3️⃣ HappyFresh switched to App Search on Elastic Cloud 🌐 and enabled it to support 10 times the search volume 2 times faster 🚀

Not convinced yet? Here are $ESTC customer stories 👥

https://www.elastic.co/customers/ 
Is that all? $ESTC is a powerful search engine and that’s it?

On top of searching through full-text data 📄 $ESTC enables you to search structured data such as numbers and aggregate data 🧮

✅ $ESTC can then be used as an analytics platform
👨‍💻 You can then write queries in order to aggregate the data you retrieved

📊 And then even visualise the data in the form of graphs
And it doesn’t stop here 🚦 $ESTC is a good at analysing full-text data 👉 What could it be used for as well?

📈 Application Performance Management (APM) by aggregating the logs (information on warnings, errors, events recorded by an application) 🗒 from different applications
📟 These logs can then be analysed 🔍 and translated into useful insights 💡 for companies
🛡Security is another area where $ESTC shines by 👇

1️⃣ Analysing authentication logs 🗝 from different sources

2️⃣ Reviewing vast volumes of DNS 🌐 data in an efficient way

3️⃣ Monitoring endpoint activity 💻 to find uncommon processes and anomalies
Ok 👉 By now what $ESTC does should be clear 💡

✅ Given their lead in full-text analysis 👉 Their product has many use cases and helps companies deliver better search results, monitor events and improve security

⁉️ Why can $ESTC win in this market? How is the market evolving?
Let’s first take a look at how $ESTC is doing on http://db-engines.com 

✅ $ESTC search engine leads 🚀 the pack with a popularity score of 153 vs. 89 for next-BEST (Apache Solr) 🚀
✅ $ESTC has over 47k questions on http://Stackoverflow.com  while Apache Solr 19.4k, Algolia 1.3k and $AMZN Cloudsearch 331

Remember when we were saying that $ESTC is an internal Google 🧭

They have become the de facto standard - or “Google” - for enterprise search 🏢
How is the market evolving? 🚀

1️⃣ According to 360 ResearchReports 👇

💻 Enterprise Search market is set to grow from $ 3.2B in 2019 to $ 9B by 2026 (CAGR of 13%)

➡️ Proliferation of data and increased requirements from users drive the demand for enterprise search
➡️ Certainly as customers increasingly rely on online means in order to access information (at banks, online shops)
2️⃣ According to Markets And Markets 👇

📟 IT Operations Market is set to reach $ 45B by 2025 - up from $ 9B in 2020 (CAGR of 37%)

➡️ Driven by wider adoption of cloud services ☁️ and the need for companies to get a holistic / 360 degrees 🌐 view of their IT operations 📟
➡️ This encompasses the log management 📟 network and security management and anomaly detection 🛡
So $ESTC is a leader in Search 🔍 and also offers IT Operations Monitoring 📟 and Security tools 🛡

What can be said about these? Here is what Forbes has to say 👇
“Elastic’s APM product has matured enough that it’s only missing some minor features. The company sees the observability market trending toward a convergence of logging, metrics, uptime monitoring and APM...
...Elastic’s go-to-market message emphasizes that the company provides all four of those offerings across a unified pricing model and user interface”
And on Security 🛡 $ESTC is securing its own part of the pie in Security Information and Event Management (SIEM) 👇

“Elastic CEO Shay Banon thinks the endpoint and SIEM markets can converge over time. With Endgame added to the Elastic Stack,...
...users will gain access to a whole new level of security analytics to help provide better attack protection”
Summarized 👉 The CEO Shay Banon 👤 is betting on the fact that enterprises want a unified offering for Search 🔍 IT Operations Monitoring 📟 and Security Information and Event Management 🛡

🚀 This is working and further supported by $ESTC impressive 130% Net Expansion Rate
☎️ If you are not convinced yet, here is an extract for the earnings call (08-26-20) 👇

⁉️ Question: “Are you starting to see more evidence of as you put the convergence of buying centers into big suites or suite purchases?”
✅ Shay Banon (CEO): “Yes, definitely the simplification of into three concrete solutions has helped especially when we go and talk to our customers […] and see all the features that are within […] the three of them we just released our major milestone in a preview release...
...of our single agent, and now, literally, endpoint protection is a click away for all of our observability users”
Financials check ✅

📈 Sales at $ 129m up from $ 89m a year earlier (44% growth)

⚙️ Gross margins of 73% 📈 Up from 71% in previous quarters

🏢 Operating loss of $ 29m 📉 OpEx as % of Sales at 96% down from 100% a quarter earlier
💵 Cash flow from operating activities at $ 22m

💰 Current assets of $ 497m vs current liabilities of $ 317m
👇 THE BOTTOM LINE 👇

✅ $ESTC has become the leader in Search 🔍 As it outranks competition in features and usage

✅ Shay Banon is rightly betting on the convergence of services at corporates and increasingly positions $ESTC as a Search, APM and Security solution
✅ This translates into a Net Expansion Rate of 130% and a growth rate of 44% on $ 129m of sales

✅ By expanding the market it targets, $ESTC is able to escape its niche by applying its core capabilities to areas these are best used for
🚦 Market for IT Operations Monitoring 📟 and Security Information and Event Management 🛡 is crowded with alternatives

👉 $ESTC excellence in Search and laser focussed expansion in areas it can win into create confidence - We have started a medium position
🍊 $LMND is on our watchlist 👉 To Be Reviewed SOON 🍊

‼️ Please note that this is not a recommendation to buy - You are responsible for conducting your own research ‼️
Disclaimer - This is not investment advice in any form and investors are responsible for conducting their own research before investing.

Sources

✑ Investor presentation

✑ Company website

✑ DBEngines

✑ Forbes
✑ Nexthink

✑ StackShare

✑ MarketsAndMarkets

✑ 360 ResearchReports
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